2. Remember those headlines going into Dow 6500? I do. I bought the Dow into those headlines. Of course, I kept up my insurance actions, removing money regularly from the financial system on a weekly basis. Nobody knew what would happen. Would the Dow make a bottom or go into an abyss with the thundering explosion of a thousand trillion dollars of OTC derivatives blowing to smithereens?
3. We are at a new Dow 6500 crossroads. An even bigger crossroads. This time, it is for the US Dollar. As the world's largest market, major action there brings the greatest debate and the most powerful players. While the global fear level is nowhere near as big as it was at dow6500, the dollars on the line are vastly larger.
4. Will the mighty US dollar stage a rally? Or will it melt down, possibly triggering a global paper currency crisis? Look at the indicators like MACD rolling over. This looks like the chart of an item that is preparing to crash, not rally.
5. The analysts are calling for a huge dollar rally and a stk mkt collapse are generally quite demoralized. The fundster technicians incorrectly identified the rising technical pattern in the Dow as an actual wedge, as opposed to the wedging action that is all it was. 6. The dollar could rally here. Jim Rogers says he's bought the dollar. My question to those selling commodities here to buy the dollar is alongside Jim "Mighty Man" Rogers is: Do you really think Jim Rogers is net long the dollar? Do you think he's bought more dollars than the commodities he holds as a core position?
7. Play the dollar as an insurance trade or a simple counter trend play. Note the key word here is: Play. Not "sell all my gold at the market, it's going down!"
8. The possibility of a strong US dollar rally is very high, yes, but the odds of a dollar collapse followed by a global paper currency crisis, are even higher.
9. Remember when gold moved towards the $1000 marker, towards the neckline of the massive head and shoulders continuation pattern on the gold weekly chart? I said, "There is a 51% chance we go higher. I am long with an ultimate target of $6000 and no amount of possible gold weakness will cause me to take any action on the sell side with my gold positions".
10. When I look at the gold monthly chart, I see a stronger technical situation now than ever! Regardless of any minor trend rally (minor trends last 1-3 weeks in time), my view is the odds of a US dollar collapse are 55%. The odds of a major rally are 45%.
11. This is a time where put options on gold could be a good idea for those who are terrified of a dollar rally. You have solid profits in gold and related items, but the "will gold rise or tank" game being played out there is too much for you mentally. You could "insure" a portion of your gold portfolio for a small cost. If gold goes higher, your further gains should far outweigh the loss on the put options.
12. I personally will not be buying any put options. In fact, I'd rather buy call options here than put options if I was forced to choose one or the other. I will be buying more gold if it declines. All the way to zero in a pyramid formation. The buys growing larger as it declines.
13. There is no "gold top" and I don't care about gold 1100. It's a round number marker and I sold into it with bits of my trading position. End of story. Here's the chart. While the daily chart calls for booking modest profits, the monthly chart is on massive buy signals. Look the TRIX configuration. That is an enormous buy signal. Gold's major technical indicators are triggering buy signals, not sells.
While head and shoulders continuation pattern price targets are generally unreliable, this is one of the greatest examples of this pattern of all time. Targets of 1200-1400 are not unreasonable, just for the move from the head and shoulders. This pattern to me looks like price could soar far beyond that target. What happens now is not so important as insuring that you are in the gold rocket when it parks at moon $1400, on the way to mars $3000.
14. If a substantial decline of size were to commence in gold, well, I would suggest we are nowhere near that point yet. But if it did occur, you have to buy, not sell. We have the banksters, the fundsters, and now the Gold Topsters. My message to the topsters is this: Stop picking your gold nose. Or you will arrive at gold moon 1400 with bits of gold, if any.
15. My suggestion to those looking for real world tactics to manage your emotions and money on the gold rocket right now if you are feeling overwhelmed by both bull and bear pulls, is to focus on what I term "Gold's Blood Relatives".16. I spoke about corn at length over the week-end. I don't view corn as better than oil or wheat, but I like to talk about one thing at a time so investors understand it, rather than just blabbing, 'oh yeah, corn is the big one, go go go!"
But you tell me, what makes more sense, a madman play to load up on dollars when there is a 55% chance of a global paper currency crisis, or to buy items like corn, one of the world's lowest risk investments, with a near-infinitely smaller chance of going off the board than the dollar? To repeat, I don't favour corn over any other gold-related item. Notice the Bloomberg headline that came out yesterday, right after my write ups. That Bloomberg story shows a stunning picture of what is going on in the Chinese corn market.
17. About 55% of all farms in China are about 3 acres in size. Or less. The six dollar a bushel marker is the corn market line in the sand. If Chinese farmers get less than $6 a bushel, the revenues needed to survive on a farm that is less than 3 acres in size just don't exist at less than 6 dollars a bushel. Chinese farming is not about profit margins. It's about revenues. The Gman is subsidizing the farmers, because the farmers are pouring out of the farms and into the cities.
18. Jim Rogers himself has stated while he doesn't think it will happen, he is clear that the risk is very real: water shortages could lay an unimaginable beating on the industrial revolution in China. No water equals: Starvation. The world bank notes the following about China:
o With 20% of the world's population but only 7% of global water resources, China meets with a severe challenge.
o More than half of China's 660 cities suffer from water shortages, affecting 160 million people.
o The per capita water volume in China is one fourth of the world average.
o 90% of cities' groundwater and 75% of rivers and lakes are polluted.
o As a result of widespread water pollution, 700 million people drink contaminated water every day.
19. Some cyclical forecasters believe an actual "dust bowl" type of event could occur in the 2011-2012 period. My suggestion is: If you are feeling like you can't go on in the gold market at this point in time, rather than trying to be king of the dollar bugs, simply shave off a FEW gold profits, and grab a nice piece of corn on the price weakness cob. Take a bite out of that, not US dollars, to kill your thoughts of gold suicide.
20. If gold goes to $3000, where will the dollar be? Focus on Gold's blood family, not gold's enemies. I would suggest you also consider the "cost of farming floor" with agricultural items like corn. It's not impenetrable by any means, but there is a price point below which the farmer throws in the towel. The odds of price going below there and staying there are small, never mind the odds of it going to a real price of zero.
The deflationists haven't factored starvation into their pipedream. There is much more Deflation of value coming to the world's economy, but there will be Inflation of Price. Earth to price deflationists on Mars: There can't be any deflation of price because we'll all starve to death. The global farming industry will collapse and we'll all die. The gold relatives advice applies to gold price chasers as well. Some have the thought, "I'm missing out, I just gotta buy, gold will be at 1200 and I'll have too little!"
If gold soars higher, do you think items like oil, food, and other hardcore commodities are going to tank? Not likely. But you can buy them without the adrenaline gusher that is present in the gold market right now. "I don't buy anything that just went to an all-time high" -Jim Rogers. Maybe you are smarter than he is. I doubt it. There are many items, like food and energy that are trading at low prices.
21. My most important point today is this: Many gold stocks haven't joined bullion yet. Those that have risen have done so modestly in most cases. Do not dump them to chase the bullion rocket. That borders on insanity. Gold stocks should be bought aggressively into any and all weakness. If you think you are missing out on bullion now, magnify that by 100, and you'll have the picture of how twisted your emotions will be when the gold stocks join the party and you sold out to chase a $100 move in bullion.
22. The Dow is beginning to hyperinflate, as major institutional players sense a US dollar meltdown is very near at hand. Rising bullion prices coupled with a soaring Dow put you, the gold stock owner, in what I term "The Ultimate Driver's Seat". There is no better place to be invested right here, right now. My suggestion is you scan the gold stocks horizon and buy what you can that is weak.
Don't walk to those stocks. Run. Notice I said "hurry". Not: "back up the truck". You don't need much fuel in a toy rocket to shoot it 500 feet in the air. That is the gold stocks market. But do not waste time. Time is of the essence. The gold juniors rocket is on the launchpad in a situation in time that I would term as about like where gold bullion was at $960 as it moved towards the triangle breakout.
23. The pros are moving onto the gold stocks rocket and preparing for liftoff, while the gold topsters are jumping out of the rocket onto the US dollar cement below. The banksters are transporting their broken bodies to the US dollar oven and preparing for final roasting. Do I have a few longside US dollar peanuts in my bag like Jim Rogers does? Sure I do. I've bought the dollar into this weakness.
With the peanut capital it deserves. So far, while I've banged about 10 or 15 USD pucks into the net on strength out of the hole from the recent low, overall it tastes like bits of USD shell mixed with USD peanuts. Those who sell gold stock in major size here and buy the dollar in size, are going to find they have a mouth full, not of shells, but of poison. It will be a mouthful far worse than the poisoning they got shorting the Dow into 6500. Gold's blood relatives versus USD paper bills in the oven. Not such a tough choice. Is it?
Stewart Thomson November 12, 2009
